Bemis net held back by higher food costs

ChristopherHinton

A MarketWatch report, published July 31, gave the incorrect cash dividend for Bemis Inc. The story has been corrected.

NEW YORK (MarketWatch) -- Bemis Inc., one of the country's largest food-packaging suppliers, said Tuesday second-quarter profit rose a paltry 1.2% as sales volume declined because Americans seemed to be buying less pre-packaged meals due to rising grocery prices.

The Neenah, Wis., company also lowered its annual earnings outlook to $1.90 to $1.97 a share vs. its previous forecast of $1.98 to $2.08 a share.

Bemis
BMS, +0.80%
said its net income was $49.5 million, or 47 cents a share, up slightly from $48.9 million, or 46 cents a share, in the same period last year. The company also raised its cash dividend to 21 cents from 19 cents a share.

Revenue slipped 1.3% to $921.8 million from $933.8 million last year, the firm reported.

Shares closed down 6.3% at $29.47, touching their lowest level in just over a year during daily trading.

Bemis sells its products mainly to the food industry, where sales are down as consumers scale back their grocery budgets to accommodate higher food and gasoline prices, Chief Executive Jeff Curler said on a conference call with analysts.

Specifically, order volume is down in markets such as meat, cheese, and bakery, where Bemis' customer base is fairly broad, and tends to reflect the general market trends, Curler said.

Food prices have been rising across the country, reflecting higher energy costs and a recent rise in corn prices as the country moves toward greater use of ethanol.

For the third quarter, Bemis said it expects earnings in the range of 48 cents to 51 cents a share, below analysts' mean estimate of 54 cents. The company said it expects slightly better volumes in the second half of the year in part from the introduction of new bacon packaging and some contract wins in the confectionary business.

The company, which celebrates its 150th anniversary next year, also said it launched an accelerated buyback plan to repurchase 4 million shares.

"We believe this is a good use of cash flow in the current market environment, and good investment for the company," CEO Curler said.

Bemis has also been facing higher polyethylene costs and increased competition from overseas suppliers of pressure-sensitive materials such as postage stamps and package labeling, which make up 20% of its business.

Bemis tried to sell its pressure-sensitive material operations to Finland's UPM-Kymmene Corp.
UPM, -1.47%
in 2003, but it was blocked by regulators. Since then the company has turned the business around, but rivals have been investing more aggressively in low-cost manufacturing capability, Merrill Lynch analyst Ross Gilardi said in a note to investors earlier this month.

The other 80% of Bemis' sales come from packaging designed to extend the shelf life of food in grocery stores.

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